Nuptial Agreements, Inheritance, and Separate Property Trusts
Discussing a prenuptial agreement is one of the most uncomfortable conversations a couple can have. Recently, we’ve noticed an increase in clients asking about these agreements, particularly for the benefit of their children — perhaps because summer is “wedding season.” Talking about asset protection before marriage is far from romantic, and because of that, many couples delay the discussion until after the wedding. Unfortunately, this can lead to bigger problems. If the newlyweds live in California (or Arizona, Idaho, Louisiana, New Mexico, Nevada, Texas, Washington, or Wisconsin), they may be in for a surprise! These states have already determined how assets will be handled without a prenuptial agreement. While it’s legally possible to sign a postnuptial agreement, the leverage to secure a spouse’s signature diminishes significantly after marriage. In our experience, the ratio of clients signing prenuptial agreements to postnuptial agreements is about 50 to 1 — few couples opt for a postnuptial agreement.
In community property states, assets acquired during marriage are treated as jointly owned or community property. Without a prenuptial agreement, separate property assets can quickly become commingled and thus transformed into community property. This can result in the wealthier spouse seeing their estate effectively cut in half. Additionally, both spouses become responsible for the other’s debts. Often, the less wealthy spouse may not be as concerned about the prenuptial discussion, believing they stand to gain half of their spouse’s estate. However, they may be unpleasantly surprised to learn they are responsible for their spouse’s debts. A common misconception is that placing assets in a living trust before marriage serves the same purpose as a prenuptial agreement. This is not true. A prenuptial agreement is a mutual contract reviewed by each party’s attorney, signed by both parties and often notarized. It can only be changed through a similar process. Conversely, when someone establishes a living trust before marriage, their fiancé doesn’t need to know anything about it, they don’t need to agree to its terms, they don’t have legal representation, nor do they sign the trust. Even if the fiancé is aware of the trust, it can be amended immediately after it’s signed without their consent. Now for some good news: Your children, who are beneficiaries of your trust, don’t need a prenuptial agreement to protect their inheritance. You’ve already taken care of that. Unless you explicitly requested otherwise (and why would you?), the trust we drafted for you creates “sub-trusts” upon your death to protect your children’s inheritance for the rest of their lives. They do not need a prenuptial agreement to safeguard what they will inherit from you. Not all trusts offer this protection, but ours do. While a prenuptial agreement is prudent for protecting one’s assets acquired before or during marriage — even inherited assets can become commingled without one — for our Life Plan clients, the bottom line is this: Your Trust includes protective sub-trusts, so your children’s inheritance is secure even if they don’t have a prenuptial or postnuptial agreement. That’s just one of the many reasons you entrusted us with preparing your Life Plan.
2 PrestonEstatePlanning.com
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